How the news affects stock prices
Namaskar doston, it's good to touch base with you guys again.
Aap logon mein se kai log first time hamare podcast sun rahe hongein. Welcome, welcome yahan pe we discuss important stock market topics and concepts, in a fun learning format.
Mera goal hai aapko insights dene ka, without putting you to sleep. Aaj ka topic bahut hi interesting hai so honestly I haven't had to do much to make it interesting.
Chaliye observe karte hai, ki news se stock prices pe kya aur kaise asar padta hai.
Pehle cheez jo samajna zaroori hai ki market jo hai, bada emotional aur highly reactive hota hai. After all, the market is made up of people. People are only human. Inko feelings hoti hai jaise ki darr aur lalach.
Small actions, big impact
All it takes is a couple of well-placed headlines and a stock price can either take flight or take a plunge. Khaas aaj ke dinon mein, when news spreads a lot faster than wildfire thanks to smartphones and the ability to share news, there is a very high chance that every reaction will have anything but an equal reaction - overreaction hone ki zyaada possibility hai.
Do examples toh aapne khud dekha hai recent maheeno mein. A couple of months ago, a very big and famous automobile and renewable energy business owner hinted that his business might accept payments in Bitcoin. Isse iss cryptocurrency ke rates shoot up ho gaya lekin dobaara neeche gir gaya jab yeh business owner ne ``clarification" diya that his company would not actually accept Bitcoin payments.
Chalo this was one example, coca cola wala example lelo. Famous athlete ka influence kitna jaada hain, yeh people saw a few days back. All the athlete had to say was "drink water" and push aside a coca cola bottle for the share price to drop by almost a whole dollar per share. This translated to almost USD 4 billion loss in market value for coca cola.
The kind of news to look for
News ka asar short term volatility ke liye Red Bull jaisa hota hai. Stock prices start behaving like the Duracel bunny, jumping up and down. Lekin what kind of news? Events like the Bitcoin announcement and the athlete's Coca Cola fiasco do not happen everyday. And why is it that the world's richest man soaring into space did not move the share price of his listed company, at least not much? ... it stayed largely stable.
Well, for most part people are looking for news that would affect a company's profitability. This includes
mergers and acquisitions;
a new competitor in a sector;
news and events surrounding a company (jaise ki lawsuit ya settlement of lawsuit)
New product launch (nahi toh product ban)
Speculation about stock prices se bhi share price pe asar pad sakta hai
Some scientific or other development that makes a product suddenly more relevant (for example pandemic news ke kaaran, virtual conferencing platforms ke liye aur demand bad gaya hain. Many investors ne VC company ke shares tabhi liya when worldwide lockdowns were being imposed)
Financial data of a company unke profits ya aur losses, in ke revenue aur expenditure, inke assets aur liabilities.
Toh phir, why did the coca cola price drop?
Yeh mera logic hai: the athlete in question woh bahut hi fit hai; bahut hi talented footballer hai. Bahut log unke fitness regime copy karte hai, ya unka hair style, unka watch... Woh kaafi brands ke liye brand ambassador hai. Investors shayad darr gaye thinking ki inke bolne par log abhi coca cola nahi pi lenge. Nahi toh kam piyeinge. That's probably why the price dropped. People panicked. Lekin what is more important is what this 1 dollar price drop means in the long run.
Long term investors are looking not just at a stock's price but at the company's profitability. In fact, value investors look for a price drop like this to enter a trade - provided the company is profitable or shows potential. They call it buying at a discount!
That brings us to our next point.
Big impact, short term
Yeh podcast ke start mein, maine bola tha ki small actions ka big impact hota hai where we are tracing the effect of news on stock prices.
I wasn't exaggerating lekin zoom out karne ke baad, in the long term, yeh big impact ka kam effect hota hai on the overall stock price trajectory.
Long term stock price increase is affected by the company's actual earnings. Short term mein chahe toh price manipulation ho sakta hai by manipulating public sentiment, which in turn affects demand and supply, lekin not in the long term.
For example coca cola incident ke baad many experts commented ki haan yeh gehra impact ho gaya hai - no doubt - lekin long term profitability mein it's unlikely that coca cola will suffer.
Of course, if the news is about a company turning around losses constantly, if it's business becomes irrelevant … aise situation mein zaroor, it can send stock prices into the ground even in the long term. Lekin investors should be paying attention to their investments. Aise cheezein achanak nahi ho jaati hai. It would be visible in the quarterly and annual reports that the company is headed for trouble.
Who gets affected and how
Day traders could be seriously and badly affected by news based spikes and dips in stock prices as could very short term traders.
Lekin long term investors ko zyaada tal aise short term hype se koi fark nahi padta hai. As long as the stock price is on an uphill trajectory - jo aapke targets ko match hota hai - aapko koi chinta nahi rehna chahiye PROVIDED NO NEGATIVE IMPACT IS SEEN IN THE COMPANY'S EARNINGS AND PROFITABILITY. Yeh bahut important hai. Any loss in profitability is indeed a red flag.
Dost to sum up, mai bolna chahta hu ki stock investing mein hype aur rumours aur sensationalism zeher jaise hota hai. They poison your logic and either make you afraid or greedy. Sahi company news - related to business potential, profitability aur financial health - aise headlines pe hi dyaan rakna. Do not resort to herd mentality and knee-jerk reactions.
Jaane se pehle, ek baat yaad rakhiyega ke stock market investing mein risk hamesha rahega. This podcast has been made for educational purposes only and the investor must do his own research as well.
Aise aur interesting podcasts sunne ke liye humein follow karein via youtube and other social media channels. Until then goodbye and happy investing!
Investments in the securities markets are subject to market risks. Read all the related documents carefully before investing.